Budget Statement 2019-20

Cabinet Secretary for Finance, Economy and Fair Work Derek Mackay on Wednesday 12 December

This Scottish Budget prepares our economy for the opportunities of the future, enables the transformation of essential public services, and builds a more inclusive and just society.

It does so in the context of continuing UK austerity and against a backdrop of a UK Government careering toward Brexit at any cost.

In sharp contrast to the chaos and uncertainty of the UK government, the Scottish Government will keep on delivering good governance for Scotland.

Just this week, we’ve had confirmation of 80,000 affordable houses built since 2007, record low unemployment, the numbers of teachers and teaching students increasing, school attainment improving and the new Best Start grant starting to provide help for low income parents.

This is a strong government - some might say strong and stable government - doing its job, delivering for the people.

This budget builds on that strong base. It provides an economic stimulus and supports the sustainability of our public services.

This is a budget that safeguards the people of Scotland as best we can from the risks we face, using all the powers and resources at our disposal.

We all know, despite their promises, the UK Government hasn’t ended austerity.

The UK Budget in October 2018 failed to provide much needed direction and leadership for our longer term finances and wider economy.

On spending, the Office for Budget Responsibility confirmed in October that the UK Government could spend £15.4 billion more and still meet its fiscal rules in 2020-21.

There can be no doubt, the Prime Minister did not keep her promise to end austerity.

Instead we have austerity, delivered by choice, not necessity. Austerity condemned by the UN. The price Scotland is paying as part of the UK is economic and social vandalism.

The facts are these. Scotland's resource block grant will be almost £2 billion lower in real terms in 2019-20 than it was in 2010-11. A fall of seven per cent.

If this year’s budget consequentials for investment in the NHS are excluded, which is reasonable given our commitments to pass all of these consequentials onto health, our 2019-20 resource block grant is £340 million less in real terms than it was in 2018-19.

That puts a huge strain on public spending which this budget works hard to manage.

Brexit

And it is not just austerity that puts pressure on our budget. Economic consensus warns us of the damage of Brexit.

The UK Government admitted two weeks ago, in a watershed moment, that it does not matter what kind of Brexit they secure. Any kind of Brexit will make us poorer.

The Scottish Government’s position is clear. The best option for the future wellbeing and prosperity of Scotland is to remain in the EU. If Scotland is forced out of the EU as a result of the actions of the UK Government, it is vital that they ensure no detriment to the Scottish Budget.

The UK Government’s decision to take us out of the EU single market and the customs union – a market of over 500 million people – is reckless and unnecessary and our growth forecasts are subdued as a consequence.

Today, the Scottish Fiscal Commission has published its latest set of independent economic and fiscal forecasts for Scotland.

The Commission has revised up its forecasts of GDP growth in every year.

They now forecast Scottish GDP to grow 1.4% in 2018 which is faster than the growth expected in the UK as a whole.

They then expect the Scottish economy to grow 1.2% in 2019, 1% in 2020 and 2021, 1.1% in 2022 and 1.2% in 2023.

However, the Commission highlights that Brexit is a key factor that is expected to lead to slower growth in productivity, population and trade in future years.

This means less money for public services and it risks making Scotland a less attractive place for businesses.

As a responsible government we are preparing, as far as possible, for all exit possibilities and we are intensifying preparations in order to protect the Scottish economy, our businesses and our workers.

We have set up new teams in Scottish Government to support preparations, including an international trade and investment policy team. We have doubled Scottish Development International’s presence in Europe and will be investing £20 million over the next 3 years to enhance and intensify support to business looking to export.

Significant resources have had to be diverted, not just in the Scottish Government but across the public sector to prepare for the impact of Brexit. A No deal Brexit and continued chaos from the UK Government, will only make that worse.

It is disappointing but necessary for me to advise Parliament that if the UK does end up in a no deal Brexit, I may be required to revisit the priorities in this budget.

However stepping back from the brink, and remaining in the EU would mean resources could be returned to supporting frontline priorities. That is just one of many reasons this government believes we should remain in the EU.

Public services

Unlike the UK Government we have chosen to use the levers at our disposal to boost our economy and support our public services.

We will continue in 2019-20 to deliver a Public Sector Pay Policy that lifts the one per cent cap on public sector pay.

I can confirm today that I have agreed a Public Sector pay policy for 2019-20 which:

Provides a three per cent pay rise for all earning £36,500 or less – higher than forecast inflation;

caps the pay bill at two per cent for all those between £36,500 and £80,000; and

continues to contain pay rises at the higher end, capping any increase for those earning over £80,000 to £1,600.

This is a reasonable and affordable public sector pay approach, and continues on a journey of restoration of public sector pay.

However I must disappoint my colleagues and say that ministerial pay will once again be frozen at 2009 levels.

Our commitment to public sector workers is part of our commitment to high quality public services.

Education

This government has made clear that our priority is closing the attainment gap and improving education.

We are determined to improve the life chances of children and young people in Scotland and change the lives of our future generations for the better.

This is our defining mission and that is why I can announce today that the education portfolio will receive a real terms increase in investment in 2019-20. We will also:

provide almost £500 million to expand early learning and childcare, supporting the recruitment and training of staff and investment in the building, refurbishment and extension of around 750 nurseries and family centres;

invest over £180 million to raise attainment in schools and close the attainment gap – including £120 million that will go direct to head teachers through the transformational Pupil Equity Fund;

invest over £600 million in Scotland’s colleges and maintain investment at over £1 billion in Scotland’s universities; and

to ensure young people have a range of avenues open to them, invest over £214 million in apprenticeships and skills, to support the ongoing expansion of apprenticeships in Scotland as we progress towards 30,000 starts per year.

Social Security and Older People

This Government will continue our work to tackle poverty and mitigate the worst impacts of the UK Government’s welfare cuts. We are already using the newly devolved social security powers to create a social security system based on dignity and respect.

In a recent report on the UK, the UN Rapporteur on Poverty and Human Rights condemned the British government's "punitive, mean-spirited and often callous" treatment of the country's poorest and most vulnerable.

I welcome the Rapporteur’s references to the very different approach being taken by the Scottish Government - noting the establishment of a social security system guided by evidence and the principles of dignity, fairness and respect; recognising we are mitigating the worst of UK Government welfare cuts; and describing our plans for tackling child poverty as ‘ambitious’.

This Government will continue our work to tackle poverty, support new families and ensure that every child has the best possible start in life. We will also continue to mitigate the worst impacts of the UK Government’s welfare cuts.

The delivery of the new social security system and the safe and secure transition of the new powers will continue to be a key priority for this Government.

In 2019-20 we will deliver fair and dignified social security assistance over and above what the UK Government provides, with a total forecast expenditure of £435 million.

This will include forecast spend of:

£37 million for Carer’s Allowance supplement, providing vital support for our carers;

£12.4 million for the new Best Start Grants to assist low income families with essential expenses on the birth of a child – and at key transitions in early years. This will support families with young children, who are feeling the impact of UK Government welfare cuts; and

£6.2 million for our new Funeral Expense Assistance, helping those on lower incomes with funeral costs.

We will also provide:

nearly £100 million to continue our mitigation of the Bedroom Tax and UK Government welfare cuts; and

we will increase the budget for our Fair Food Fund from £1.5 million in 2018-19, to £3.5 million in 2019-20; with £2 million specifically to tackle food insecurity during school holidays.

Justice Services

Safeguarding Scotland, we will continue the protection of the police resource budget in real terms, provide over £5 million of additional resources to the Scottish Fire and Rescue Service to support their transformation, and increase the funding to the Crown Office and Procurator Fiscal Service by £5 million to recruit additional legal staff to manage increased caseloads.

The Economy

The Scottish economy is the power house that fuels ambition for Scotland. We are determined to unlock its full potential.

I want to see a country that is globally competitive with innovation, sustainability and fairness at its heart.

That is why this year I launched our new Economic Action Plan with a number of decisive measures to improve the competitiveness of our business environment. We will:

support an Advanced Manufacturing Challenge Fund of up to £18 million to ensure all parts of Scotland benefit from developments in advanced manufacturing;

invest £5 million as part of our three year £20 million plan to boost exports; and

work with partners to enhance the digital skills that businesses require, including a new £1 million Digital Start Fund to support people with lower incomes.

We will also invest around £2.4 billion in our enterprise and skills bodies and develop the work of the enterprise and skills review and strategic board.

Economic stimulus

In addition the Scottish Government has committed around £1.3 billion to support Scotland’s seven cities and their regions to maximise economic opportunity.

In 2019-20 we will:

secure fully agreed City Region Deals for Stirling and Clackmannanshire and for the Tay Cities Region;

progress Growth Deals for the Ayrshires, Borderlands and Moray;

progress discussions for Argyll and Bute, Falkirk and the Islands; and

continue our financial commitment for the City Region Deals to Glasgow, Aberdeen, Inverness and Edinburgh.

These investments will benefit all of Scotland, creating thousands of jobs and up-skilling local labour markets, building on the economic strengths and opportunities for each region.

We have a clear commitment to Fair Work and Employability, and as part of this we will:

invest £5 million over three years to support around 2,000 women to return to work following a career break;

support parents to address barriers to work and providing in-work support to help low income parents remain in work; and

develop our Fair Work First principle for public procurement so that as much of our funding as possible supports a fair and inclusive economy.

Investment and building for the future

Investment in people is crucial, creating meaningful employment is the best social policy.

We also know that greater investment in infrastructure improves quality of life, boosts productivity and makes our country a more attractive place to do business.

That is why this Government will increase capital investment by £1.56 billion per year by the end of the next Parliament.

This Budget begins that journey and sets out capital investment of more than £5 billion over the coming year. Including;

£1.7 billion investment in our transport infrastructure;

more than £180 million towards City Region and Growth deals; and

£175 million of investment in nursery and childcare buildings.

Of course it is vital that the right investments are made to generate inclusive growth and to deliver our low carbon objectives. We must act on climate change.

Our investments in broadband, transport and utilities will provide the foundation for companies to invest and bring new economic opportunities across Scotland.

As part of this vision, I will continue our ground-breaking work to establish a Scottish National Investment Bank. This budget will provide £130 million of funding to establish the bank and pre-cursor investments.

The next £50 million of the £150 million Building Scotland Fund announced last year, will provide debt and equity support to the private sector and organisations, such as housing associations and universities, to:

support the development of housing across all tenures;

develop modern industrial and commercial space; and

support industry led research and development.

In 2019-20 we will invest a record £826 million as part of our total investment of over £3 billion to deliver 50,000 affordable homes over the course of the Parliament across the length and breadth of Scotland.

Building for Scotland, and building new homes too.

Land and Buildings Transaction Tax

As well as building more houses we are continuing to protect those buying their first home and progressing through the property market with our progressive land and buildings transaction tax.

But for those purchasing additional properties I am proposing to increase the Additional Dwelling Supplement from 3% to 4%.

Legislation will be laid before Parliament tomorrow and if approved, the rate change will come into force on 25 January 2019.

Pro-Business

I have listened carefully to the business community. They seek investment in skills, people, innovation, and infrastructure. This budget delivers such investment.

We are committed to providing the best possible environment for businesses, supported by a competitive non-domestic rates regime.

Last year I limited the increase in business rates to CPI inflation. This year I will go further.

I am announcing today that we will cap the increase in the rates poundage in 2019-20 in Scotland at a below-inflation level of 49 pence, limiting the increase to 2.1 per cent.

This will ensure that over 90 per cent of properties in Scotland - and all small and medium sized businesses - pay a lower poundage than they would in other parts on the UK.

I can also confirm that I will continue to uprate the poundage in line with CPI for the remainder of the Parliament.

Our package of business rates reliefs, including the Small Business Bonus, is the most generous anywhere in the United Kingdom - worth an estimated £750 million in 2019-20, and continuing the growth accelerator, will give us a further competitive advantage.

I am also proposing changes to non-residential Land and Buildings Transactions Tax which will mean that Scotland has the most competitive rates in the UK.

Under these proposals, two thirds of all non-residential transactions will pay less tax in future than at present.

Again I will lay legislation on this change before Parliament tomorrow and if approved, the rate change will come into force on 25 January 2019.

These measures will help our businesses grow, prosper and be successful.

Boosting Town Centres / supporting business

We are proceeding with the Barclay review recommendations to reform non domestic rates. Businesses have asked me to rule out the introduction of an out-of-town levy, a recommendation from the Barclay review.

And while the Barclay review recommended that we explore this possibility as a means of supporting our town centres, in light of proposed UK taxes, I do not believe that it would be right or fair to introduce such a tax at this time. We will of course keep this under review.

However, I share the view that our town centres require support in a changing retail environment. I can announce today that we will establish a new £50 million capital fund to support our town centres to diversify and develop, ensuring our town centres are thriving sustainable places where people choose to spend their time.

Income tax

Presiding Officer, last year we took the decision to introduce a new, progressive, fair and balanced income tax system that raises additional revenue from those who can most afford it and protects public spending.

This helps us to make Scotland the kind of country that we want it to be, funds our public services, supports our economic infrastructure and supports those most in need.

Our income tax proposals will continue to follow the four key tests the Scottish Government introduced last year:

protecting the lowest paid taxpayers;

improving progressivity;

raising additional revenue for public services; and

protecting the Scottish economy.

I have decided, this year, that I will not increase any of the rates of income tax. Tax rates will remain the same and as a result 99% of all taxpayers will see no increase in the tax they pay.

However, in 2019-20, I will increase the Starter and Basic Rate bands by inflation to protect our lowest and middle earning taxpayers. The Higher Rate Threshold will be frozen.

This will ensure that 55% of Scottish taxpayers continue to pay less than they would if they lived elsewhere in the UK and Scotland will continue to be the lowest taxed part of the UK.

For example, a pensioner earning £15,000, with access to free personal care, free bus travel and cheaper council tax, will be better off by around £9,700 in 2019-20, relative to the rest of the UK.

While someone earning £62,149, the same as an MSP, will pay just over £30 a week more in income tax in Scotland than they would elsewhere in the UK. But, that’s before you consider any of the benefits of Scotland’s social entitlements, like state funded university tuition, which we will continue to protect.

At a time of constrained growth, prolonged austerity and growing economic uncertainty, all as a result of a failing UK Government, now is not the time to cut tax for the highest earners at the expense of our public services.

Instead, I will be using the additional resources raised through my tax decisions in this budget to support our public services and ensure that our health service gets all of the additional money they were promised.

The UK Government failed to deliver in full on the resources they promised our health services, leaving us £55 million short. My decisions ensure we can restore that amount.

I believe that this is the right decision for Scotland.

Our tax policy supports our public services and investment in our economy, whilst Scotland continues to be the fairest taxed part of the UK.

Our economy has grown faster than the rest of the UK in the first six months of this year. There is no evidence whatsoever in the Scottish Fiscal Commission’s report, that our income tax policy in Scotland is slowing growth.

But I want my decisions to be based, always, on the best evidence, so I will be asking our Council of Economic Advisers to expand their analysis of the impact of potential behavioural effects and the possible impact on future revenues.

Health

Providing the necessary investment for health in a fair and balanced way, this is equipping our frontline services to take forward the measures set out in the Health and Social Care Financial Framework and Waiting Times Improvement Plan.

We recognise our NHS and wider health and social care system must continue to adapt to the changing needs of our population.

In 2019-20, we will continue our improvement of these vital services.

I can announce today that I am increasing the health portfolio resource budget by almost £730 million - that is an increase of almost £500 million in real terms.

This decision confirms that health is a top priority for the Government and will take spending levels to £754 million over and above inflation since 2016-17 - the equivalent of 19,000 nurses.

We will also deliver a further shift in the balance of spend towards mental health and primary, community and social care. As part of this, we are increasing our package of investment in social care and integration to more than £700 million in 2019-20.

And we will increase our direct investment in mental health services by £27 million, taking the overall funding for mental health to £1.1 billion in 2019-20, this includes our work to improve mental health services support in schools.

Local Government

The decisions I have taken in this year’s budget will also allow me to increase funding for local government in 2019-20, providing total support of £11.1 billion.

And let me be clear, this provides a real-terms increase in both revenue and capital funding, and an overall real terms increase in the local government settlement of over £210 million.

Protecting Scotland

This budget safeguards Scotland using all the powers, resources and tools available to do so.

If opposition parties choose to argue for additional spending in any area, over and above what I have set out in this budget then, to have any credibility, they need to indicate where the money should come from.

Should it come from a rise in the basic rate of income tax and hit those on lower incomes?

Or should it come from a cut to public services?

And if so, which public services would they cut - the NHS, education or local government?

Presiding Officer.

The Scottish Government cannot completely protect Scotland from the recklessness of the UK Government, but the decisions we have taken in this budget ensures that we protect what matters most.

We choose to:

transform our early learning and childcare;

protect funding for education and improve attainment;

invest record sums in our health services;

provide a real terms increase in total funding for local government;

expand free personal care; and

deliver a fair and just new social security system which will support those most in need.

We are doing all this while the UK government implodes on their journey of economic self-harm.

That is why the people of Scotland have entrusted us to focus on the delivery of our public services and the economy.

This budget delivers for the Scotland of today, and invests for the Scotland of tomorrow.